Feb 15, 2026
The Payment of Bonus Act, 1965 is the statutory anchor for the concept of “deferred wage” in Indian labour law. It was enacted on the recommendation of the Bonus Commission (1961) which sought to convert what had historically been an ex gratia festival payment into a statutory right linked to productivity and profitability.
The Act applies to factories and other establishments employing 20 or more persons and provides a minimum-maximum band of bonus (8.33% to 20%) tied to the allocable surplus generated by the establishment. As of 2026, the Act remains in force and is consolidated under the Code on Wages, 2019 which has been notified but whose state-level rules continue to roll out.
For a foreign employer using an Employer of Record in India, statutory bonus is one of the most commonly mis-handled compliance items because of the interaction between the wage cap, calculation formula, and contractual treatment.
The Act applies to:
A critical feature: once the Act applies, it continues to apply even if the number of employees falls below 20 subsequently. There is no de-application threshold. This is particularly relevant for IT/ITeS startups that scale up beyond 20 and later contract — they continue to owe bonus in perpetuity.
Section 32 expressly exempts certain categories:
Section 36 empowers the Central Government to exempt establishments with the consent of the appropriate authority for a specified period, on grounds of financial position and other relevant factors.
Two cumulative conditions must be met for an employee to be eligible:
The 30 working day count includes:
It excludes:
Section 9 disqualifies an employee from receiving bonus if dismissed from service for:
Disqualification is per-incident — an employee dismissed at the end of the accounting year is disqualified for that year’s bonus only, not retroactively for prior years already paid.
Every employer must pay a minimum bonus of 8.33% of the salary earned by the employee during the accounting year, or ₹100, whichever is higher.
This minimum is payable regardless of whether the establishment has allocable surplus or even makes a profit. It is treated as a deferred wage. Even a loss-making establishment must pay 8.33%.
The maximum bonus payable is 20% of the salary earned during the accounting year. The exact percentage between 8.33% and 20% is determined by the allocable surplus computed under the Act’s formula:
If the allocable surplus exceeds 20%, the excess is set on for future years (Section 15).
Even though employees earning up to ₹21,000 are eligible, bonus is calculated on a notional salary capped at ₹7,000 per month or the minimum wage notified for the scheduled employment, whichever is higher.
The 2015 amendment that raised the eligibility threshold to ₹21,000 also amended Section 12 — previously the cap was ₹3,500 — to ₹7,000 or scheduled minimum wage, whichever is higher.
Consider an employee in Maharashtra:
If the bonus rate is 8.33%:
If the bonus rate is 20%:
Without the wage cap (calculating on actual ₹18,000), the 20% bonus would be ₹43,200 — illustrating how Section 12 reduces the liability for higher-earning employees.
Section 19 requires bonus to be paid within 8 months from the close of the accounting year. For employers following:
Where there is a dispute pending under Section 22, the bonus must be paid within one month from the date the award becomes enforceable.
The appropriate Government may extend the period by up to two years for sufficient cause. Delay beyond the prescribed period:
Sections 15 and 16 provide a mechanism to smooth bonus payments across years:
This ensures that minimum bonus (8.33%) is paid even in low-surplus years by drawing on past surpluses, and excess is reserved for future deficits.
Every employer covered by the Act must maintain prescribed registers and file annual returns:
The Inspector under the Act has powers under Section 27 to enter premises, examine registers, take statements, and require production of documents. Failure to file Form D, or to maintain Forms A/B/C, attracts penal consequences under Section 28.
Section 28 prescribes:
For any contravention of the Act or rules, including failure to pay bonus, failure to file returns, failure to comply with Inspector’s requisitions, or false statements.
Section 29 provides for offences by companies — every person in charge of and responsible to the company is deemed guilty unless they prove the contravention took place without their knowledge or that they exercised due diligence.
In addition, Section 21 allows recovery of bonus due as arrears of land revenue on application by the employee or their authorised representative — a fast-track recovery mechanism that bypasses civil court.
A frequent source of dispute is whether performance bonus, retention bonus, festival bonus, or annual bonus counts towards the statutory bonus obligation.
The general rule under Section 17 is that any puja bonus or other customary bonus paid in advance during the year is adjustable against the statutory bonus payable, provided there is a clear policy or contract permitting this set-off.
However, performance-based bonus tied to KPIs, retention bonus, and discretionary annual bonus are separate and additional unless the employment contract expressly provides that they include statutory bonus.
Best practice:
This avoids set-off disputes and ensures clarity in disclosures. For more on Indian salary structures, see our CTC structures guide.
The Code on Wages, 2019 consolidates the Payment of Bonus Act, 1965 along with the Minimum Wages Act, Payment of Wages Act, and Equal Remuneration Act. Once fully implemented:
State-level rules continue to roll out as of 2026. Employers should track State Gazette notifications for the effective date in their state. See our deep dive on the India labour codes implementation for current status.
Omnivoo handles statutory bonus compliance as part of every India EOR engagement. Our payroll engine flags every eligible employee against the ₹21,000 wage threshold and 30-working-day service condition each month, accruing bonus liability on the lower of actual basic + DA and the Section 12 cap (₹7,000 or scheduled minimum wage, whichever is higher). At year-end, we compute allocable surplus, apply set-on/set-off carried from prior years, distribute bonus within the 8.33%–20% band, and disburse payment well within the 8-month statutory deadline.
We also handle the often-missed administrative tail — preparing Forms A, B, C, and D, maintaining auditable registers, filing Form D with the Inspector within 30 days, and surfacing immutable computation logs for your auditors. For employers above the ceiling we structure contractual ex-gratia bonus separately to avoid set-off disputes, and we coordinate with global compensation teams to ensure that India statutory bonus is correctly disclosed in offer letters, salary slips, and global pay equity reports. The result is bulletproof bonus compliance with zero manual work for your in-house team.
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